Brown gambles on tax hike to transform ailing NHS

Chancellor Mr Gordon Brown has gambled Labour's fortunes, and his own, on a massive tax hike to transform Britain's ailing National Health Service, writes Frank Millar, London Editor.

Seeking to pre-empt Tory charges of broken promises, Mr Brown cast the health service as a moral issue which would "define the character of our country" as he raised National Insurance contributions and froze personal tax allowances in what was widely seen as a down-payment on Labour's bid to win the next election, and Mr Brown's to secure the eventual succession to Number 10.

In a ringing finale to his budget statement, an exuberant Mr Brown told MPs: "We have made our choice - a budget to make our NHS the best insurance policy in the world." Beaming alongside him was the Health Secretary Mr Alan Milburn, the main budget beneficiary with the promise of a massive 43 per cent, £40 billion sterling (€65 billion), increase in health spending over the next five years.

However, the smile on the face of Prime Minister Tony Blair will have concealed the nervousness among New Labour's high command at the likely reaction in the "Middle Britain" constituency so vital to Labour's election triumphs in 1997 and 2001.

Labour MPs cheered the Chancellor to the rafters, while trade union leaders welcomed a budget which "put need before greed". Mr John Edmonds, general secretary of the GMB, said: "This was a rare event in British politics, an honest and courageous budget. By putting investment into the NHS and other public services, before tax cuts, Gordon Brown has put need before greed. This is the budget the Labour movement and the country has been waiting for."

From the leader of the Liberal Democrats, too, there was a welcome for this "more transparent and honest approach" to the question of tax and spending. However, Mr Charles Kennedy also observed that while the Lib Dems had made the case for such an approach during the last two elections, Labour had given no indication of the tax increases to come.

And he added: "The health service increase will of course be welcome but for many patients it has come anything up to five years too late. This would have been a really good budget five years ago. That doesn't stop it being in many respects a welcome budget five years later, but a lot of credibility and a lot of opportunity have nonetheless been lost by the government in that intervening five years."

The Conservative leader, Mr Iain Duncan Smith, immediately seized upon the "credibility" issue, accusing Labour of breaking its election promise not to raise taxes while insisting "the NHS needs change as much as it needs money". After five years of "stealth" taxes, the Chancellor used his sixth budget statement to finally bite the bullet on tax - announcing a freeze on next year's allowances for all but pensioners, coupled with a 1 per cent increase in National Insurance contributions on earnings up to £30,420 and an additional 1 per cent contribution to run up and down the salary scale.

Mr Brown said these changes would see health spending as a proportion of GDP rise from 6.7 per cent in 1997 through 8.7 per cent in 2005/06, to 9.4 per cent by 2007/08. And he sought to sweeten the pill with a £2.5 billion boost to child tax credits which would benefit working families earning less than £58,000 per year.

He reflected the government's belief that it has "won the argument" against tax cuts in favour of "investment" in public services.